Last checked at 31 Mar 2009 07:00
31 March 2009
Zest Group plc
Preliminary Results
for the twelve months ended 30 September 2008
Chairman's Statement
I present the results of the Group for the year ended 30 September 2008.
Sale of Greensleeves business
On 25 January 2008 the Company entered into an agreement for the disposal of its Greensleeves business to VP Records (UK) Limited and the disposal was subsequently approved by shareholders at a General Meeting on 13 February 2008 and completed on 18 February 2008. The total consideration for the disposal was £3,100,000 in cash, £100,000 of which was on a deferred basis.
The Greensleeves business was acquired on 31 March 2006 by the Company for a consideration of £3,250,000, comprising of a cash consideration of £3,000,000 and the issue of 8,333,334 Ordinary Shares which were issued at 3 pence per share. On 19 June 2007, the Company announced that it had reached a settlement with the vendors of the Greensleeves business in relation to the breach of certain specified warranties given at the time of the acquisition. The gross settlement for these breaches was £455,687.
The proceeds from the disposal were used by Zest to repay its borrowings of approximately £1.8 million and its creditors and to provide additional working capital for the Company.
ResultsDuring the year the Group recorded a loss before taxation from continuing operations of £1.28 million (2007: loss £839,000). There was a loss per share on continuing operations of 0.7p (2007: loss per share 0.5p) and a loss per share on discontinued activities of 0.3p (2007 : loss per share 0.2p).
Operational review
A songwriter and record producer signed to Zest, Tony Fennell, has a song on hold with Disney Records and has a number of other covers currently being considered by major record labels. Tony is also recording and writing an album with a mainstream female artist, which is expected to be concluded this summer for an autumn/winter release.
Whilst the Board continues to support these artists and is confident that the Group will receive some positive financial benefit from these relationships, in the current economic climate the quantum and timing of this benefit is subject to significant uncertainly. Accordingly, in order to take a prudent view of prospects, the Board has agreed to make a full provision against the recoverability of sums advanced to these artists in the preparation of these accounts.
Loss of capital
The financial statements show that the Company's net assets are less than half its called up share capital. In the circumstances, the directors of the Company are obliged by section 142 of the Companies Act 1985 to convene a general meeting for the purposes of considering whether any, and if so what, steps should be taken to deal with the Company's current financial position. We propose to consider this matter at the Company's annual general meeting details of which are set out in the notice accompanying the Company's report and accounts, although no resolution will be put to the meeting on this issue.
Board changes
Following the disposal of the Greensleeves business, Marcus Lee and Grant Gazdig stepped down as Finance Director and Non-executive Director of the Company respectively and on 13 January 2009 Jon Crawley resigned from the Board to pursue other business interests. The Board would like to thank Marcus, Grant and Jon for their contributions to the Company.
Outlook
The Company will continue to seek to optimise the value of existing artists and where the opportunity arises, seek to add further rights by signing new artists and songwriters. In addition, Zest continues to look for potential acquisition opportunities and to explore alternative routes to securing shareholder value.
I would like to thank the staff and our shareholders for their continued support.
CONSOLIDATED INCOME STATEMENT
For the year ended 30 September 2008
| 2008 | 2007 | |||
| Note | £'000 | £'000 | ||
| Administrative expenses - amortisation of intangible assets | (20) | (19) | ||
| - impairment of intangible assets | (78) | - | ||
| - impairment of advance payments to artists | (533) | - | ||
| - other administrative expenses | (469) | (710) | ||
|
| ||||
| Total administrative expenses | (1,100) | (729) | ||
| Loss from operations | (1,100) | (729) | ||
| Finance costs | (187) | (111) | ||
| Finance income | 7 | 1 | ||
| Loss before taxation | (1,280) | (839) | ||
| Taxation | 3 | - | - | |
| Loss for the year from continuing activities | (1,280) | (839) | ||
| Loss from discontinued operations | (475) | (337) | ||
| Loss after taxation and retained loss attributable to the equity holders of the company | (1,755) | (1,176) | ||
| Loss per ordinary share (pence) | 4 | |||
| Basic and diluted | ||||
| Continuing operations | (0.7)p | (0.5)p | ||
| Discontinued operations | (0.3)p | (0.2)p | ||
| (1.0)p | (0.7)p |
There were no recognised gains or losses other than the loss for the financial year.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 30 September 2008
| Share capital | Share premium | Share based payment reserve | Retained earnings | Total equity | |
| £'000 | £'000 | £'000 | £'000 | £'000 | |
| At 1 October 2006 | 434 | 3,598 | 67 | (1,128) | 2,971 |
| Total income and expense - loss for the year | - | - | (1,176) | (1,176) | |
| Employee share based compensation | - | - | 59 | - | 59 |
| At 30 September 2007 | 434 | 3,598 | 126 | (2,304) | 1,854 |
| Total income and expense - loss for the year | - | - | - | (1,755) | (1,755) |
| Employee share based compensation | - | - | 40 | - | 40 |
| At 30 September 2008 | 434 | 3,598 | 166 | (4,059) | 139 |
CONSOLIDATED BALANCE SHEET
At 30 September 2008
| 2008 | 2007 | |||
| Note | £000 | £000 | ||
| ASSETS | ||||
| Non-current assets | ||||
| Intangible assets | - | 3,163 | ||
| Property, plant and equipment | 1 | 685 | ||
| 1 | 3,848 | |||
| Current assets | ||||
| Inventories | - | 429 | ||
| Trade and other receivables | 133 | 1,983 | ||
| Cash and cash equivalents | 62 | 32 | ||
| Total current assets | 195 | 2,444 | ||
| Total assets | 196 | 6,292 | ||
| LIABILITIES | ||||
| Current liabilities | ||||
| Trade and other payables | 57 | 2,350 | ||
| Bank loans | - | 252 | ||
| Other loans | - | 484 | ||
| 57 | 3,086 | |||
| Non-current liabilities | ||||
| Bank loans | - | 1,352 | ||
| Total liabilities | 57 | 4,438 | ||
| EQUITY | ||||
| Share capital | 5 | 434 | 434 | |
| Share premium | 3,598 | 3,598 | ||
| Share based payment reserve | 166 | 126 | ||
| Retained earnings | (4,059) | (2,304) | ||
| Total equity attributable to equity holders of the Company | 139 | 1,854 | ||
| Total equity and liabilities | 196 | 6,292 |
CONSOLIDATED CASH FLOW STATEMENT
For the year ended 30 September 2008
| 2008 | 2007 | |||
| £000 | £000 | |||
| Cash flows from operating activities | ||||
| Continuing operations | ||||
| Loss after taxation | (1,280) | (839) | ||
| Adjustments for: | ||||
| Amortisation of intangible assets | 20 | 19 | ||
| Depreciation of property plant and equipment | 1 | 1 | ||
| Impairment of intangible fixed assets | 78 | - | ||
| Equity settled share based payments | 40 | 59 | ||
| Finance cost | 187 | 111 | ||
| Finance income | (7) | (1) | ||
| Decrease in trade and other receivables | 608 | 274 | ||
| (Decrease)/increase in trade an other payables | (323) | 213 | ||
| Net cash outflow from operating activities from continuing operations | (676) | (163) | ||
| Discontinued operations | ||||
| Net cash inflow/(outflow) from operating activities from discontinued operations | 519 | (346) | ||
| Net cash outflow from operating activities | (157) | (509) | ||
| Cash flows from investing activities | ||||
| Continuing operations | ||||
| Purchase of property, plant and equipment | (1) | - | ||
| Finance cost | (49) | (111) | ||
| Finance income | 7 | 1 | ||
| Adjustment to purchase price of subsidiary undertakings | - | 417 | ||
| Net cash from investing activities from continuing operations | (43) | 307 | ||
| Discontinued operations | ||||
| Net cash inflow/(outflow) from investing activities from discontinued operations | 2,029 | (55) | ||
| Net cash generated from investing activities | 1,986 | 252 |
CONSOLIDATED CASH FLOW STATEMENT (CONTINUED)
For the year ended 30 September 2008
| Cash flows from financing activities | ||||
| Continuing operations | ||||
| New loans | - | 484 | ||
| Repayment of loans | (1,799) | (228) | ||
| Net cash (outflow)/inflow from financing activities from continuing operations | (1,799) | 256 | ||
| Net cash outflow from financing activities from discontinued operations | - | (22) | ||
| Net cash (outflow)/inflow from financing activities | (1,799) | 234 | ||
| Net change in cash and cash equivalents | 30 | (23) | ||
| Cash and cash equivalents at 1 October 2007 | 32 | 55 | ||
| Cash and cash equivalents at 30 September 2008 | 62 | 32 |
1. basis of preparation
The Group financial statements have been prepared for the first time under the historical cost convention, in accordance with International Financial Reporting Standards as adopted by the European Union (IFRS). The Company's shares are listed on the AIM market of the London Stock Exchange. Separate financial statements of Zest Group plc (the Company) have been prepared in the Group's annual report and financial statements under the historical cost convention and in accordance with applicable accounting standards under UK GAAP.
The transition to IFRS has resulted in a number of changes in the reported financial statements, notes thereto and accounting policies compared to the previous annual report. The effect of the transition to IFRS is detailed in the Group's annual report and financial statements.The principal accounting policies are detailed in the Group's annual report and financial statements.Going concernThe Directors note the substantial losses that the Group has made for the year ended 30 September 2008. The Directors have prepared cash flow forecasts for the period ending 31 March 2010 which take account of the current cost structure of the Group and include a conservative estimate of income to be generated from the operational business. These forecasts demonstrate that the Group has sufficient finance facilities available to allow it to continue in business for a period of at least twelve months from the date of approval of these financial statements. Accordingly, the financial statements have been prepared on a going concern basis.
2. segmental information
3. Taxation - continuing operations
There is no tax credit on the loss for the current or prior year.
The tax assessed for the year differs from the standard rate of corporation tax in the UK as follows:
| 2008 | 2007 | ||||
| £'000 | £'000 | ||||
| Loss before tax | ` | (1,280) | (839) | ||
| Loss multiplied by standard rate of corporation tax in the UK of 28% (2007: 30%) | (358) | (252) | |||
| Effect of: | |||||
| Disallowable expenses | 50 | 32 | |||
| Deferred tax asset not recognised | 308 | 220 | |||
| Current tax charge for year | - | - |
The Group has tax losses in the UK, subject to Her Majesty's Revenue and Customs approval, of approximately £3,199,000 (30 September 2007: £2,100,000) available for offset against future operating profits. The Group has not recognised any deferred tax asset in respect of these losses, which would amount to £896,000 (2007:£588,000) due to there being insufficient certainty regarding its recovery.
4. LOSS PER SHARE
The calculation of the basic loss per share is calculated by dividing the consolidated loss attributable to the equity holders of the Company by the weighted average number of ordinary shares in issue during the year.
| 2008 | 2007 | |||||
| £'000 | £'000 | |||||
| Loss attributable to equity holders of the Group | ||||||
| Continuing operations | (1,280) | (839) | ||||
| Discontinued operations | (475) | (337) | ||||
| (1,755) | (1,176) |
| 2008 | 2007 | |||||
| Number | Number | |||||
| Weighted average number of shares for calculating loss per share | 173,619,050 | 173,619,050 |
The impact of the share options and share warrant is anti dilutive.
5. share capital
| 2008 | 2007 | |
| £'000 | £'000 | |
| Authorised | ||
| 4,000,000,000 ordinary shares of 0.25p | 10,000 | 10,000 |
| Allotted, issued and fully paid | ||
| 173,619,050 (2007: 173,619,050) ordinary shares of 0.25p | 434 | 434 |
6. publication of non-statutory accounts
The financial information set out in this preliminary announcement does not constitute statutory accounts as defined in section 240 of the Companies Act 1985.
The summarised consolidated balance sheet at 30 September 2008 and the consolidated income statement, consolidated statement of changes in equity, consolidated cash flow statement and associated notes for the year then ended have been extracted from the Group's 2008 statutory financial statements upon which the auditor's opinion is unqualified and does not include any statement under Section 237 of the Companies Act 1985.
The accounts for the year ended 30 September 2008 will be posted to shareholders and laid before the company at the Annual General Meeting on 1 May 2009. Copies will also be available from Zest Group plc's Registered Office: Kitwell House, The Warren, Radlett, Hertfordshire, WD7 7DU and via the website (www.zestmusic.com) in accordance with AIM Rule 26.